Blame Alan? No, Arthur's the culprit

None of the above. Blame SEC's Arthur Levitt. Why? Because the SEC's new Regulation FD is having a huge impact on the "Information Technology Revolution." More than anticipated. It leveled the playing field between Wall Street and Main Street. Unfortunately, however, it's also accelerating the bad news, the downturn, the recession.

Fear. Fear's driving this market. As greed did for years. In fact, fear and greed always drive the market. Every year. Fear. Greed. Back and forth. Oh, you think numbers control trends? The market's rational? Investors logical? Think again.

Fear and greed -- markets are 100% emotional

Greed and fear run markets. Period. Psychology. This reality has even spawned a new field: "Behavioral finance." These experts say trading, investing, personal finance are 80% psychological, emotional, gut feelings. Just plain irrational. A random walk between a field of dreams and a mine field. In the "irrational exuberance" of the dot.com market the last few years it was more like 100 percent psychological. Totally emotional. Chasing the new paradigm, the new economy: "This time it's different!" But it wasn't.

"A year ago, SEC Chairman Arthur Levitt said that corporate managements should make market moving data available to everyone at once, not initially just to friendly analysts. Analysts yawned. But when the SEC issued Regulation FD (for Fair Disclosure) last October, Wall Street yelled 'Foul!' "

Bad news spiraling out of control

But unfortunately, it is backfiring. Here's why: Corporate reports quickly began adding the "bad news" about the future, along with the good! For example, quarterly reports used to be lots of hype, puffery, promotion. But with "Fair Disclosure," corporate executives had to start telling the truth about skeletons in the closet, problems just over the horizon.

Bad news is bad news. No more glossing over the dirt. Tell American investors about "market moving" bad news. Now. Months in advance, if you got it. Not just the hype. And no analysts get the jump on Main Street. Shilling says that before Reg FD most analysts were just salesmen, too "busy finding and promoting finance deals that they spend little time on serious company analysis." No more.

Analysts and economists overreacting

So back in October Corporate America was scared into telling the truth -- releasing all the 'bad news.' Ripple effect: Analysts and economists began lowering earnings estimates and economic projections. No more sugar coating. No more "accentuate the positive, eliminate the negative." Tell us the "bad news!"

So three months of "bad news" started hemorrhaging from Corporate America. And that, in turn, forced Wall Street analysts and economists to factor in the bad news. Everyone knew the economy was weakening. But suddenly, "bad news" was also accelerating -- louder, stronger, faster.

What happened? First Call/Thomson Financial reported on the sudden, dramatic shift -- as the consensus earnings estimates for first quarter 2001 suddenly dropped from 14.2 percent to 11.2 percent. In a few weeks time. Worse yet, analysts quickly lowered year-end 2001 earnings from earlier forecasts of 19.1 percent way down to 12.6 percent. Huge drop!

Talking ourselves into a recession?

Ironically, the media and press love bad news. Why? Because bad news sells! Think Monica, O.J. trial, Florida chads? We're bad news junkies. And for the past few months the media has been jumping on this "bad news" bandwagon.

Business Week was prompted to ask: "Are We Talking Ourselves Into A Recession?" Yes, accelerating into "a V-shaped economic downturn [where] the economy could shoot through the soft-landing zone and bottom out at 1 percent to 2 percent. Unemployment could rise faster and higher than anticipated. The good news is that the recovery may come faster, too, as the Fed lowers rates and corporations return to spending money on productivity-enhancing and profit-generating technology."

CBS.MarketWatch.com economist Paul Erdman says a "V-shaped downturn" has been under way for months. And the bottom "will occur during the first and second quarters of 2001, with growth at zero or slightly below zero." Then recovery.

Has SEC overdosed America on 'bad news?'

Unfortunately, investors are having a bad time adjusting to this over-dose of "bad news." Few understand the powerful impact of Reg FD. Is bad news really good news? Yes, says Business Week. But in time, individual investors "will learn not to panic at a little bad news." And hopefully, corporate executives, analysts, economists and the media will also see that "bad news is good news" -- and stop panicking.

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